We open with a report on Europe’s ailing nuclear plants, then shift to China’s growing reluctance to buy European bonds — while others are so eager to buy that they’re willing to lose money on their investment. And the folks drawing up the new banking regulations propose to sunder banks from brokerages.
On to Spain, with the latest Spailout news [lots of playing coy], and more about that other bailout needed to pump up the country’s busted banks. Political tensions are growing, and the push for Catalonian secession grows, while the government plays political games with social security — the kind of games Transparency International says need to end. There’s also a hint of a coming crackdown on protest, and a stunning turnout for some new job openings.
From Ireland come stories about declining consumer confidence and the politics of cutting child benefits, while from France comes a story about growing divisions in the president’s party, Germany gives us declining car sales, and Cyprus offers a story of bailoutus interruptus.
Europe’s aging nuke plants plagued by faults
We’ll start out with a cheery story.
If the Troika’s really serious about economic stimulus and job creation, maybe they can cough up some cash to fix the numerous faults in the continent’s aging nuclear power stations.
And there are problems, lots of problems, with plants located near some of Europe’s most populous cities.
From the BBC:
Hundreds of problems have been found at European nuclear plants that would cost 25bn euros (£20bn) to fix, says a leaked draft report.
The report, commissioned after Japan’s Fukushima nuclear disaster, aimed to see how Europe’s nuclear power stations would cope during extreme emergencies.
The final report is to be published on Thursday. The draft says nearly all the EU’s 143 nuclear plants need improving.
Anti-nuclear groups say the report’s warnings do not go far enough.
For its part, the regulatory body for European nuclear safety has urged the Commission not to use language that could undermine public confidence, says the BBC’s Chris Morris in Brussels.
For more background, see this from Deutsche Welle.
China holds back of European investments
Seems that they’re reticent to buy bonds when there’s that potential of haircuts to come and that specter of a eurozone breakup lurks in the wings.
From Lidia Kelly of Reuters:
Chinese investors will not buy into bonds issued by debt-ridden euro zone countries until their fundamental problems are solved, a senior official with China’s $480 billion sovereign wealth fund said on Tuesday.
Jin Liqun, chairman of the supervisory board of the China Investment Corporation (CIC), said it is unlikely that the debt problems bedevilling euro zone countries will be solved until Europe is in super-critical situation.
“There will be no solution, until there is no way out,” Jin told Reuters in an interview.
Jin said China backs the European Central Bank’s plans for unlimited bond purchases to aid debt-strapped euro zone states, but stated that in itself this would not be enough and the time it bought should be devoted to crucial reforms.
More from the Economic Times:
“The ECB is going in the right direction, with the support, most importantly of the Germans, which is crucial,” Jin, a former finance vice-minister, said on the sidelines of the VTB Capital investment conference in Moscow.
“But whether this is a momentary solution or a permanent solution – it does not depend on the ECB policy in and of itself.”
Urgent reforms in the “peripheral” countries of the euro zone, which are shouldering the heaviest debt burden, must take place.
“We have monetary policy hijacked by fiscal policy, which in turn is hijacked by the social programmes – unless you solve the fundamental problems, this kind of ECB policy will not work forever.”
Eurpols hustle for infrastructure cash
If there’s a rationale place to invest funds during an economic crisis, it’s infrastructure.
Recall all those projects built during the New Deal in a effort to create new jobs and stimulate the economy.
But European governments aren’t so eager to put up the cash.
From Honor Mahony of EUobserver:
The European Commission has started banging the drum for new €50bn pot of money that it says will reinvigorate Europe’s economy amid fears that penny-counting member states will give it the chop.
With just weeks to go until EU leaders are supposed to decide on the bloc’s budget for 2014-2020, commission president Jose Manuel Barroso urged member states to be open to the ‘Connecting Europe Facility’ (CEF), an investment pot for joining up transport, digital and energy networks.
“There is a difficulty in Europe about new ideas,” Barroso said Tuesday (2 October) and urged business – which is largely in favour of the idea – to “make your voices heard.”
Member states are due to decide on the EU budget at a special summit in November. The EU commission last year proposed increasing spending by 5 percent to €971.52 billion over the seven-year period. But the negotiations have thrown up two main camps – richer states who want to chop the proposed budget and poorer countries who want to maintain regional aid. Diplomats suggest a compromise may be found by reducing the CEF.
The countries in favour of Cohesion Policy (regional funding) and agricultural policy are “very well organised” said Barroso admitting that “there is not yet a team CEF.”
Investors eager to buy into bailout fund
With the certainty that more bailouts are on the way, investors are flocking to buy bonds of the European Financial Stability Facility, the bailout machine set up two years ago.
The EFSF is on the way out if the new European Stability Mechanism can finally get all the necessary votes and the €500 billion in funds currently envisioned to fund the new machinery.
But investors are so eager to buy EFSF bonds that they’ll literally pay to buy them, with the current slate of offerings actually bought up at negative interest rates.
From Agence France-Presse:
Investors accepted negative returns to lend to the EU’s bailout fund on Tuesday, according to the German central bank, which organised the auction of three-month debt.
The EFSF fund sold 1.99 billion euros ($2.57 billion) of three-month paper at an average rate of -0.04 percent, the Bundesbank said, roughly the same yield as at a similar auction last month.
A negative yield means that overall and over the life of the loan, investors agree theoretically to pay the EFSF to lend it money.
But despite the poor returns, investors were keen to snap up the debt. The Bundesbank received bids worth 5.63 billion euros, giving a healthy cover ratio — a closely watched measure of demand — of 2.8.
European Union banking regs could split banking functions
Deregulation of U.S. banks under Bill Clinton reversed rules separating banking from brokering. The real estate bubble, fueled by a myriad of mysterious “swaps” and “obligations,” and resulted in the crash that government chose to resolve by picking the pockets of the same poor citizens who were suckered into the bubble.
The eurocrats currently drawing up the proposed regulatory authority that would strip states of their banking oversight and hand it over to the European Central Banksters and their pals in Brussels are looking to do what the U.S. undid. [That, of course, will be a major sticking point with the banksters of The City in London.]
From Agence France-Presse:
Banks would have to separate consumer deposit-taking from high-risk trading for the financial sector under EU reforms proposed by the governor of the Bank of Finland and unveiled on Tuesday.
The report on reforming the structure of the banking sector across the European Union single market was presented to EU Financial Services Commissioner Michel Barnier, and could be taken up in legislative proposals pending a public consultation including savers.
The idea is to “get rid of a system where profits are private and costs are public,” Bank of Finland governor and ex-European Commissioner Erkki Liikanen told reporters after the presentation of his panel’s conclusions.
This way, “all taxpayers will be better off” and with “more clarity and less complexity,” legislative changes will also lead to greater competition, which also serves the consumers, Liikanen said.
More from Xinhua:
“I will now consider the next steps, in which the Commission will look at the impact of these recommendations both on growth and on the safety and integrity of financial services.” Barnier reiterated.
The report also illustrates other suggestions to better preserve healthiness of European banking sector, such as urging banks to draw up and maintain effective recovery and resolution plans, using designated bail-in instruments, applying more robust risk weights in the determination of minimum capital standards, and enhancing existing corporate governance reforms.
The advisory group was designated by Barnier in November 2011 with Liikanen as chairman, while members were appointed in February 2012. Its mandate was to determine whether structural reforms of EU banks would strengthen financial stability and improve efficiency and consumer protection, as well as making proposals on reforms.
And on to Spain. . .
Spain again declines the Spailout
They’re really pushing on the eurocrats, who are desperate for the country to ask for a bailout.
Two separate bailouts are in the offing, one for the banks and the other for the Spanish government.
While Spain’s indicated it will take the bank bailout, the prime minister is playing coy with the sovereign bailout, the Spailout, in hopes that the growing anxiety in Brussels and Frankfurt will get them a better deal.
First, a video report from euronews:
And the story, first from Reuters:
Spanish Prime Minister Mariano Rajoy said on Tuesday a request for European aid was not imminent following a report the country could apply for help as soon as this weekend.
Rajoy made the comments after meeting in Madrid with the 17 leaders of Spain’s regions.
European officials told Reuters late on Monday that Spain was ready as early as next weekend to ask the euro zone and the European Central Bank to start buying its bonds, but Germany had signaled it should hold off.
“If a news agency reports that we’ll ask for aid this weekend, there can only be two explanations; that the agency is right, and knows more than I do, which is possible, or that they are not right,” Rajoy said with a smile when asked about the Reuters’ report.
“But, if it helps, and you accept that what I say is more important than this leak, I say no (we won’t ask for aid this weekend.)”
As for that bank bailout, a leading rater confirms earlier reports contending that Spain had significantly underestimated the amount of cash needed.
The rating agency Moody’s Tuesday said that Spanish banks will need between 70 and 105 billion euros (135 billion U.S. dollars), a figure that is higher than the one provided by Oliver Wyman last Friday.
The agency said that Spanish banks need this money to be recapitalized and face potential losses.
Moreover, Moody’s said that the figure provided by Oliver Wyman, 53.7 billion euros taking into account mergers, may be insufficient to get investors confidence back.
The agency talks about the possibility that the markets do not trust these tests, which can make that the bank recapitalization causes unexpected consequences.
However, the agency is positive about the process of bank recapitalization. It considers that the process will help improve the financial entities solvency and therefore increase confidence in the Spanish banking sector.
Pain in Spain and chaos in Catalonia
That financial mess is only half of the headache facing the Spanish government at the moment, the other half being the growing sentiment for secession by Catalonia, the nation’s industrial motor centered on Barcelona.
From an analysis in Lisbon’s Diário de Notícias by José Manuel Pureza, via a Presseurop translation:
The right-wing Convergència i Unió government in Catalonia now has to contend with 822,000 unemployed workers in the wake of 22 months of successive cuts in social welfare benefits. This potentially explosive situation has been compounded by the freezing of funds for the autonomous regions, which was pushed through by the central government following a revision of the Spanish constitution implemented at supersonic speed to comply with an order issued by Berlin and Brussels. And what is remarkable is the contrast between the zeal with which this order was executed by the local representatives of Brussels and Berlin – the People’s Party (PP) and the Spanish Socialist Workers’ Party (PSOE) – and these two same parties vehement insistence that the constitution cannot be modified with a view to enabling the Catalan people to hold a referendum on their right to self-determination.
In the context of the demand for constitutional change, the new budgetary pact between Madrid and the autonomous regions appears, by virtue of its obsession with austerity, to be a monument to the absence of political horse sense: specifically with regard to the refusal to envisage the explosive consequences that major cuts in public funding would have on relations between the central government and the regions. In Spain, like in Portugal and Greece, the pyromaniacs from Berlin and their local assistants have succeeded in setting a torch to the social equilibrium, with no thought for the terrible demons that may be awakened by the uninterrupted blaze of the sacrificial fire that must be kept stoked on the altar to the goddess of austerity.
Playing politics with Social Security
One of the government’s austerity measures enacted in hopes of getting a Spailout without the usual misery memorandum was a massive increase in the Value Added Tax, or sales tax in the U.S.
The VAT hike sent inflation spiking, sparking anger by retirees dependent on government pensions, themselves under pressure.
In response, the government has now vowed to find a way to make up for the loss, and the timing is politically interesting.
From El País:
The secretary of state for Social Security, Tomás Burgos, said Tuesday the government is studying “formulas” to compensate state pensioners for the loss of purchasing power as result of a jump in inflation without putting further pressure on its already strained finances.
The law obliges the administration to top up pensions to offset any deviation above the official inflation target for the year, which is one percent for 2012. Inflation in September was estimated at 3.5 percent, after the standard value-added tax rate was increased to 21 percent from 18 percent in the same month. If the consumer price index remains at that level in November, this will entail a further cost to the state coffers of five billion euros between the end of this year and the start of the next.
The government included a one-percent rise in state pensions in the 2013 budget but in order to pay for this while maintaining its deficit-reduction program, it will dip into the Social Security reserve fund to the tune of some three billion euros. The government has been so far evasive about what it intends to do about the loss of spending power of the 8.9 million retirees in Spain, but one option would to follow the suit of the state budget by tapping the reserve fund.
The main opposition Socialist Party leader, Alfredo Pérez Rubalcaba, has accused the administration of Prime Minister Mariano Rajoy of deliberately ignoring the situation until after regional elections in Galicia and the Basque Country later this month.
And speaking of playing politics
Consider the following from Martin Delfín of El País:
Major changes are needed to loosen the grip the two major Spanish parties — the Popular Party and the Socialists — have on state institutions, including on the judiciary and oversight agencies, in order to “guarantee order, efficiency, stability and justice,” states a new report on Spain by Transparency International (TI).
In a long list of recommendations, the Berlin-based anti-corruption watchdog says Spanish parties must unlock their electoral slates so that constituents can vote for their own representatives, as well as change party financing law to obligate them to publish their accounts in a “detailed, timely and easily understood” fashion.
The 14-page report released on Friday also calls for the de-politicization of the legal system, especially the General Council of the Judiciary (CGPJ) watchdog, and said efforts should be made to make the Attorney General’s Office more independent, particularly when it comes to corruption cases. The Audit Court should also be obligated to release annual public audits covering the financial state of and effectiveness at all public agencies, TI says.
“The influence of the two major political parties on the legislative, executive and, to a certain degree, the judicial branch can be strong whenever their interests are at stake,” states TI. “Accountability mechanisms might complicate government’s strategic behavior and improving this could go against certain party interests.”
Substitute Republicans for Popular Party and Democrats for Socialists, and you could say most of the same things about the U.S.
Spanish official hints of crackdown on protests
All those millions turning out to protest austerity or to call for Catalonian are getting on the nerves of the Spanish government official responsible for permitting them.
She’s got one small problem. The Spanish constitution makes protests so much easier than here in the U.S.
But not to worry. She suggests that changes are coming.
From El País:
“It’s not me, it’s the law,” said Cristina Cifuentes, the central government delegate in Madrid, last Friday in response to veiled accusations from Madrid Mayor Ana Botella that she was permitting “too many” protests in the capital.
On Tuesday, Cifuentes reiterated that the law governing the right to congregate and protest is “broad and permissive,” and has been abused by last year’s 15-M marches and camp-outs, besides the recent attempts to encircle Congress. Thus, Cifuentes has proposed “modulating” the law to “rationalize the use of public space.”
In an interview with RNE state radio, Cifuentes said that Madrid’s situation is “difficult because protests are constant and the number of them excessive,” an opinion she backed up with a statistic. So far in 2012 there have been “almost 2,200 rallies and protests” in the capital. Botella on Friday gave a figure of 2,732. In 2011, there were a total of 1,380, according statistics from the mayor’s office. “The topic of protests is a just a political row thrown up by the current situation and encouraged because there are some groups that are trying to achieve in the streets what they couldn’t at the ballot box,” said Cifuentes.
The government delegate stated that the constitutional right to protest requires no previous authorization, with the mere delivery of a note to her office sufficing. But Cifuentes believes that marches should be compatible with other citizens “being in a habitable city, which means being able to move freely, that there are no disturbances and no public order problems. It is my objective and I will try to achieve it.”
A sign of the times: 150 jobs, 15,000 applicants
Every so often a story comes along that makes the abstract real.
Consider those massive unemployment numbers in light of this from Fiona Govan of the London Telegraph:
More than 15,000 people looking for work queued to apply for just 150 vacancies at the factory of agricultural machinery company J
As data showed unemployment across Spain has risen by 11pc over the past year, the applicants had no idea what positions they were applying for or what wages to expect, just that there was the possibility of a regular job.
“The truth is I have no idea what the job is, beyond that it is at a factory,” one 23-year-old applicant was reported as saying.
Employment agency Adecco in the Getafe district of Madrid, which advertised the job, said it had seen more than 15,000 jobseekers in the week before the application closing date of Monday.
Overwhelmed by the huge response, the agency said it will hold a draw of those who applied to narrow the list to 1,500 before considering suitable applicants for the positions.
And on to Ireland. . .
Irish consumer confidence falls
After a brief uptick, more Irish folk feel that things are headed to hell in a hand basket.
We think they’re right.
From Pamela Newenham of the Irish Times:
Consumer sentiment fell sharply in September as fears about the economy, the Budget and personal finances weighed on consumers.
The KBC Bank Ireland/ESRI consumer sentiment index fell from 70 in August to 60.2 last month.
The decline reversed most of the improvement seen through 2012 with the Sentiment Index now back at its weakest level since last February.
“For most of the past nine months, the improvement in sentiment reflected a gradually broadening view that the worst might be over. The September survey results suggest consumers are no longer sure that is the case,” KBC chief economist Austin Hughes said.
Irish government has already cut child benefits
The government’s announcement that it was considering cuts to child welfare benefits masked a darker truth. Cuts have already been implemented, writes Michael Taft of Irish Left Review:
[M]edia reports that the Government is considering cutting Child Benefit is not correct. The Government is already intending to cut Child Benefit. They announced it last year, started it last year and intend to continue doing it next year. So the Government is not considering cutting Child Benefit. It is considering cutting more Child Benefit.
Last year, the Government announced its intention to eliminate the Child Benefit supplement to the third and additional child.
The Government is already cutting Child Benefit. For households with three children, the Government intends to cut the supplement for the 3rd child by 17 percent over two years and the supplement to the 4th child by 21 percent. And that’s on top of cuts that started since Budget 2010. So what has been the total level of cuts for larger families since the crisis began, factoring in the cuts the Government has already announced for next year?
Child Benefits payment for households with more than two children will be cut by €63 a month for each child – or 31 percent.
That is a big, big hit. And that doesn’t count the abolition of the Early Childcare Supplement – which had nothing to do with childcare; it was essentially a Child Benefit supplement. This was worth €83 a month for families with young children.
But that’s austerity in action, slashing away at programs created to help those living on society’s margins while enriching the investor class.
Hollande’s party struggles to overcome burgeoning split
And the reason for crisis inside the Socialist [sic] Party is dissent over the austerian conditions of the president’s new budget.
First, a video report from euronews:
And the story, from Tony Cross of Radio France Internationale:
France’s Socialist-led government faces political embarrassment this month as it asks parliament to ratify the European fiscal pact, sure that it can rely on the votes of the right-wing opposition but not of those in its own ranks.
At least 40,000 people demonstrated against the European Fiscal Compact in Paris on Sunday, summoned by the Left Front of Jean-Luc Mélenchon and mobilised by the organisational skills of his Communist Party allies.
They point out that the pact was negotiated by François Hollande’s predecessor, Nicolas Sarkozy, and German Chancellor Angela Merkel and accuse the current president of breaking his election promise to renegotiate the package.
This is a right-wing, pro-austerity package, which commits countries to a structural deficit of 0.5 per cent of their GDP, or a general budget deficit, which allows for economic hard times, of three per cent.
Sarkozy’s party, the UMP, agrees with them but reaches a different conclusion … nearly all its MPs will be voting to ratify the deal, while mocking Hollande for making promises he couldn’t keep.
More from Nicholas Vinocur of Reuters:
a string of leading Socialists have since raised doubts over whether France will stick to the 3 percent deficit goal as its economy teeters close to recession, forcing the government to re-affirm that the target would be kept.
“We should not forget that if France does not keep its word, that is to say does not meet its deficit-reduction targets next year, then our status as a sovereign borrower will be devalued,” Budget Minister Jerome Cahuzac told RTL radio.
“I think we will reach that target in 2013,” he added.
France’s medium- and long-term debt is currently yielding an average of around two percent as markets for now accord it the status of a core member of the euro zone.
Crucial to that status is the credibility of annual deficit-reduction targets fixed by Hollande in an effort to balance the budget by 2017. But the official due shortly to take the helm of his Socialist Party said strict adherence was not essential.
“The three percent is just a means, if economic conditions allow it,” said Harlem Desir, who last month was nominated by party bosses to become the next party leader.
“Whether they are there this year or the year after is not the essential question,” he said in a radio interview on Monday, insisting that nurturing jobs and investment were the main goal.
German domestic car sales decline again
While German luxury cars are still selling in Asia and the U.S., thanks to all that money the lootocrats are making these days, Germans are buying fewer cars.
For the first six months of this year, car sales in Germany had managed to steer around the industry crisis hitting other European markets. But now the Continent-wide slump appears to have begun moving north. On Tuesday, the Federal Motor Transport Authority (KBA) announced that new car registrations in Germany were down some 11 percent in September against the same month last year.
The steep drop marked the third consecutive month that new car sales have fallen in Germany, following 5 percent drops in both July and August. But the KBA was quick to note that, because this year September had two fewer work days than it did in 2011, the actual drop was closer to 2 percent. Nevertheless, the new data shows that the European-wide car crisis is no longer confined to the south.
The automotive industry in Germany remains much stronger than elsewhere in Europe, though. Luxury brands continue to do well, with both Porsche and Audi registering increased sales over the first nine months of the year. Overall, some 2.4 million cars were registered in Germany from January to September, a slight drop over the same period last year.
Many German brands have been able to rely on strong sales in both the United States and Asia. However, that is not the case for many European car companies, which focus almost exclusively on markets closer to home. The result so far this year has been a dramatic industry plunge that looks set to result in the worst annual car sales in Europe in 17 years.
Cyprus has second thoughts on bailout
After a bid to win funds from Russia cooled, Cyprus is having to turn to the Troikarchs to win funds to help the country recover from its heavy investments in Greek bonds.
But the President is having second thoughts, presumably evoked by watching the bailout spectacles in Greece, Spain, Portugal, and Ireland.
Cyprus wants to avoid a painful recession like Greece is going through as it continues talks with the European Union and International Monetary Fund on bailout terms, President Demetris Christofias said.
“You’ve already lived through it but we don’t want to live through the same,” Christofias said at a meeting with Greek President Karolos Papoulias in Athens on Tuesday, according to an e- mailed transcript.
Christofias’s comment came after Papoulias asked about the Cypriot economy and a reporter noted that Greece had already gone through bailout procedures. “Clearly we have problems too,” Christofias said.